Below is a list of standard terms in the tax relief industry:
- Retainer: A retainer is a fee you agree to pay a tax relief professional in advance of services that the professional promises to perform. It’s easiest to think of it as a fee “to reserve” the professional’s time (yes, we mean “reserve”–that means if you don’t use the time that you’ve reserved, you lose it–and your money!). Indeed, the fee is nonrefundable, and often the fee is valid (i) for a limited scope of services to be rendered (ii) within a specified period. Our thoughts about retainers are as follows: You wouldn’t pay your plumber to fix a pipe one year from now, so why would you pay a tax professional to work that way? Unless a retainer is wholly or partially refundable, we recommend avoiding retainer fees altogether.
- Flat Fee: Flat fees are very common in the tax relief industry, but just like you wouldn’t believe the world is flat, don’t think for a second that flat fees are flat either. Flat fees are not flat! At least not always. Costs in addition to “flat” fees include credit card charges, “move” charges, add-on charges, and the list goes on. Ask in the investigative stage for a schedule of all relevant fees and certainly don’t sign any fee agreement without ensuring that all the fees are spelled out, and they make sense. Remember, even though you may be vulnerable to the IRS, you are not vulnerable to tax relief companies. Be aggressive to ensure you get the terms and fees you want from your tax relief provider.
- Services Rendered: Often retainer fees cover the specific services you requested (e.g., file an offer in compromise) plus additional services you may never need, nor use (e.g., file an appeal if the offer in compromise is rejected). For example, if you pay to have tax relief profile your offer in compromise and if the IRS accepts it, obviously you’ll never need to file an appeal, which means that you essentially overpaid for the professional services. These fees for future (and often unnecessary) services also pop up in flat fees. You may think, “This is great. I’m getting a 2-for-1 deal since not only am I getting a flat fee to file my offer in compromise but it also pays for my appeal.” Conversely, the tax relief pro is thinking “statistically, the IRS accepts 8 out of 10 of the offers in compromise I submit, so I get to pocket the extra cash from the 8 clients who paid me to file an appeal but never ended up needing it.” If the tax relief pro is concerned more about your success than your money, he or she should permit you to pay only for what you need today and give you a quote or at least a rough estimation of what other services might cost if they become necessary and essential to your case. This is called “a la carte” tax services, and it’s wise to seek out companies that offer it.
- Tax Attorney: Nearly all tax relief firms tout having “tax attorneys” standing by, ready to solve your tax problem. Being represented by “an attorney” sounds professional and prestigious and so tax relief firms like to tout it from all four corners of their advertisements. Be careful to ask the person you’re speaking to at the tax relief firm if he or she is an attorney. Often the person is not an attorney. He or she may be a CPA or an enrolled agent. These two categories of professionals are equally well suited to represent you before the IRS, but if it is an attorney you’re seeking, make sure to ask that an attorney of the firm represent you.